Merck Announces First-Quarter 2013 Financial Results
May 1, 2013 6:00 am ET
- 2013 First-Quarter Non-GAAP EPS of $0.85, Excluding Certain Items; GAAP EPS of $0.52
- Worldwide Sales were $10.7 Billion, a Decrease of 9 Percent Primarily as a Result of Patent Expiries, and Including a 2 Percent Unfavorable Impact from Foreign Exchange
- Growth in Vaccines, Immunology, HIV, Animal Health and Consumer Care Products
- Received Breakthrough Therapy Designation for Lambrolizumab, an Investigational Candidate for Advanced Melanoma; Five Products Currently Under Regulatory Review
- Announced New $15 Billion Share Repurchase Program; Plans to Repurchase Approximately $7.5 Billion of Common Stock over the Next Twelve Months
- Revises 2013 Full-Year Non-GAAP EPS Target to $3.45 to $3.55, Excluding Certain Items; Revises GAAP EPS Range to $1.92 to $2.16
Merck (NYSE: MRK), known as MSD outside the United States and Canada,
today announced financial results for the first quarter of 2013.
|$ in millions, except EPS amounts||
Non-GAAP EPS that excludes items listed below1
GAAP Net Income2
|Non-GAAP Net Income that excludes items listed below1,2||2,585||3,044|
Non-GAAP (generally accepted accounting principles) earnings per share
(EPS) for the first quarter of $0.85 exclude acquisition-related costs,
restructuring costs and certain other items. First quarter non-GAAP EPS
included unanticipated net tax benefits of approximately $0.06 per share.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in
the tables that follow.
|$ in millions, except EPS amounts||First Quarter|
|Non-GAAP EPS that excludes items listed below1||$0.85||$0.99|
|GAAP net income2||$1,593||$1,738|
|Non-GAAP net income that excludes items listed below1,2||$2,585||$3,044|
|Decrease (Increase) in Net Income Due to Excluded Items:|
|Net decrease (increase) in income before taxes||1,431||1,582|
Income tax (benefit) expense5
|Decrease (increase) in net income||$992||$1,306|
“Our first quarter performance reflects the challenges of major patent
expiries coupled with the impact of currency and other headwinds,” said
Kenneth C. Frazier, chairman and chief executive officer, Merck. “During
the quarter, we took focused actions to reach our EPS target while at
the same time advancing Merck’s pipeline in our laboratories and through
strategic deals and partnerships. I remain confident in the future
opportunities for our strong and diverse business and committed to
delivering long-term value to our shareholders.”
Select Revenue Highlights
Worldwide sales were $10.7 billion for the first quarter of 2013, a
decrease of 9 percent compared with the first quarter of 2012, including
a 2 percent negative effect from foreign exchange.
The following table reflects sales of the company’s top pharmaceutical
products, as well as total sales of animal health and consumer care
$ in millions
|PROQUAD, M-M-R II and VARIVAX||272||255||7%||7%|
Pharmaceutical Revenue Performance
First-quarter pharmaceutical sales declined 12 percent to $8.9 billion,
including a 2 percent negative impact due to foreign exchange. Declines
of SINGULAIR (montelukast sodium), MAXALT (rizatriptan benzoate) and
CLARINEX (desloratadine) following loss of market exclusivity were
partially offset by strong growth for GARDASIL [Human Papillomavirus
Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant], ZOSTAVAX
(zoster vaccine live), REMICADE (infliximab), SIMPONI (golimumab) and
Sales from emerging markets grew 6 percent, including a 2 percent
negative impact from foreign exchange. Emerging market sales accounted
for approximately 21 percent of pharmaceutical sales in the first
quarter of 2013. China continues to be a key driver of growth in the
emerging markets with sales increasing 23 percent for the first quarter,
including a 2 percent benefit from foreign exchange.
Worldwide sales of the combined diabetes franchise of JANUVIA
(sitagliptin)/JANUMET (sitagliptin/metformin HCI) declined 1 percent to
$1.3 billion in the first quarter, including a 2 percent negative impact
from foreign exchange. The decline reflects lower sales in the United
States of 5 percent, primarily driven by reduced customer inventory
levels, which were partially offset by growth in the rest of the world.
Sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin),
medicines for lowering LDL cholesterol, declined 3 percent to $1.0
billion in the first quarter driven by lower sales of VYTORIN, partially
offset by growth of ZETIA in the United States.
Combined sales of REMICADE and SIMPONI, treatments for inflammatory
diseases, increased 11 percent to $657 million in the first quarter of
Merck’s sales of GARDASIL, a vaccine to help prevent certain diseases
caused by four types of human papillomavirus (HPV), were $390 million,
an increase of 37 percent for the quarter. The increase was driven by
higher sales in the United States, reflecting continued strong uptake in
males and higher public sector purchases, as well as favorable
performance in the emerging markets.
ISENTRESS, an HIV integrase inhibitor for use in combination with other
antiretroviral agents for the treatment of HIV-1 infection, grew 8
percent to $362 million in the first quarter driven by strong growth in
the emerging markets and Europe.
Worldwide sales of SINGULAIR, a once-a-day oral medicine for the chronic
treatment of asthma and the relief of symptoms of allergic rhinitis,
declined 75 percent to $337 million in the first quarter. The patents
for SINGULAIR expired in the United States in August 2012 and expired in
major European markets in February 2013. The company experienced a
significant and rapid reduction in sales in the United States and is now
also experiencing a substantial decline in Europe.
Sales of VICTRELIS (boceprevir), the company’s oral hepatitis C virus
protease inhibitor, declined 1 percent in the first quarter to $110
million, including a 2 percent negative impact from foreign exchange.
Lower sales in the United States were partially offset by continued
growth in international markets.
Sales of ZOSTAVAX, a vaccine for the prevention of herpes zoster, were
$168 million in the first quarter of 2013, up from $76 million in the
first quarter of 2012, driven by strong demand in the United States.
Animal Health Revenue Performance
Animal Health sales totaled $840 million for the first quarter of 2013,
a 2 percent increase compared with the first quarter of 2012, including
a 2 percent negative impact due to foreign exchange. The increase was
driven by strong performance in companion animal products, including
sales of ACTIVYL, a new product for the treatment and prevention of
fleas and ticks in dogs and cats, as well as continued growth in poultry
products. Animal Health products include pharmaceutical and vaccine
products for the prevention, treatment and control of disease in all
major farm and companion animal species.
Consumer Care Revenue Performance
First-quarter global sales of Consumer Care were $571 million, an
increase of 3 percent compared to the first quarter of 2012, including a
1 percent negative impact due to foreign exchange. The sales increase
was primarily due to COPPERTONE suncare products and CLARITIN.
Other Revenue Performance
Other revenues – primarily comprising alliance revenue, miscellaneous
corporate revenues and third-party manufacturing sales – increased 34
percent to $369 million compared to the first quarter of 2012. The
increase was primarily driven by higher revenue from AstraZeneca LP
(AZLP) recorded by Merck, which increased 41 percent to $262 million as
compared with atypically lower first quarter 2012 AZLP revenues.
First-Quarter Expense and Other Information
The costs detailed below totaled $9.0 billion on a GAAP basis during the
first quarter of 2013 and include $1.4 billion of acquisition-related
costs and restructuring costs.
|$ in millions||Included in expenses for the period|
|First Quarter 2013||
|Materials and production||$3,959||$1,184||$43||$2,732|
|First Quarter 2012|
The gross margin was 62.9 percent for the first quarter of 2013 and 65.6
percent for the first quarter of 2012, reflecting 11.5 and 10.5
percentage point unfavorable impacts, respectively, from the
acquisition-related costs and restructuring costs noted above. The gross
margin decline primarily reflects the impact of the SINGULAIR patent
Marketing and administrative expenses, on a non-GAAP basis, were $2.9
billion in the first quarter of 2013, a decrease from $3.0 billion in
the first quarter of 2012.
Research and development (R&D) expenses, on a non-GAAP basis, were $1.9
billion in the first quarter of 2013, an increase from $1.8 billion in
the first quarter of 2012.
Equity income from affiliates was $133 million for the first quarter,
primarily reflecting the performance of partnerships with AZLP and
Sanofi Pasteur MSD.
Other (income) expense, net was $282 million of expense in the first
quarter of 2013, compared to $142 million of expense in the first
quarter of 2012. The first quarter of 2013 includes approximately $140
million of exchange losses due to a Venezuelan currency devaluation.
The GAAP effective tax rate of (4.3)% for the first quarter of 2013
reflects the impact of acquisition-related costs and restructuring
costs, as well as an out-of-period tax benefit of approximately $160
million associated with the resolution of a previously disclosed legacy
Schering-Plough federal income tax issue. The non-GAAP effective tax
rate, which excludes these items, was 12.5% for the quarter. Both the
GAAP and non-GAAP first quarter effective tax rates reflect the
favorable impact of tax legislation enacted in the first quarter of
2013. The first quarter 2013 tax rates also reflect the net favorable
impact of other discrete items, primarily a reduction in tax reserves
upon expiration of applicable statute of limitations, which resulted in
unanticipated net tax benefits of approximately $0.06 per share as noted
The company noted the following developments:
Announced a new share repurchase program of up to $15 billion of
Merck’s common stock for its treasury. The company expects to
repurchase approximately $7.5 billion of common stock over the next 12
months, financed through a combination of debt issuance and operating
cash flows, with the remainder to be repurchased over time with no
Entered into a worldwide (except Japan) collaboration
agreement with Pfizer Inc. (Pfizer) to develop and commercialize
ertugliflozin, an investigational oral sodium glucose cotransporter
(SGLT2) inhibitor being evaluated for the treatment of type 2
diabetes. Merck and Pfizer will collaborate on the clinical
development and commercialization of ertugliflozin and
ertugliflozin-containing fixed-dose combinations with metformin and
Announced that the U.S. Food and Drug Administration (FDA) has
designated lambrolizumab (MK-3475), an investigational antibody
therapy for advanced melanoma, as a “Breakthrough
Entered into an agreement
with Bristol-Myers Squibb (BMS) to conduct a Phase II clinical
trial to evaluate the safety and efficacy of a once-daily oral
combination regimen consisting of BMS’ investigational NS5A
replication complex inhibitor and Merck’s investigational NS3/4A
protease inhibitor (MK-5172) for the treatment of genotype 1 hepatitis
C virus infection.
Increased investment in emerging markets with the opening
of a new pharmaceutical manufacturing facility in Hangzhou, China.
The site will package Merck medicines for China and the Asia Pacific
region and become a critical part of the company’s global supply chain.
Announced FDA acceptance
of a Biologics License Application (BLA) for an investigational
Timothy grass pollen (Phleum pratense) allergy immunotherapy
tablet (AIT) for review. The company also submitted a BLA to the
FDA for its investigational ragweed pollen (Ambrosia artemisiifolia)
Entered into an agreement with Samsung
Bioepis Co., Ltd (Samsung) to develop and commercialize multiple
biosimilar candidates. Under the agreement, Samsung will be
responsible for preclinical and clinical development, process
development and manufacturing, clinical trials and registration and
Merck will be responsible for commercialization.
Merck now expects full-year 2013 non-GAAP EPS to be between $3.45 and
$3.55, and 2013 GAAP EPS to be between $1.92 and $2.16. The 2013
non-GAAP range excludes acquisition-related costs, costs related to
restructuring programs and certain other items. The company updated its
full-year guidance due to pressures on sales that are greater than
previously anticipated, including foreign exchange, as well as new R&D
programs and a revised tax rate.
At current exchange rates, Merck now expects full-year 2013 sales to be
approximately 3 to 4 percent below prior year levels with foreign
exchange accounting for more than 2 percentage points of the decline.
In addition, the company now expects full-year 2013 non-GAAP R&D expense
to be slightly higher than 2012 levels. The company now expects its
full-year 2013 non-GAAP tax rate to be in the range of 22 to 23 percent.
A reconciliation of anticipated 2013 EPS, as reported in accordance with
GAAP to non-GAAP EPS that excludes certain items, is provided in the
$ in millions, except EPS amounts
|Full Year 2013|
|GAAP EPS||$1.92 to $2.16|
|Difference3||1.53 to 1.39|
|Non-GAAP EPS that excludes items listed below||$3.45 to $3.55|
|Acquisition-related costs4||$5,125 to $4,800|
|Restructuring costs||700 to 500|
|Net decrease (increase) in income before taxes||5,825 to 5,300|
|Income tax (benefit) expense5||(1,180) to (1,070)|
|Decrease (increase) in net income||$4,645 to $4,230|
As of March 31, 2013, Merck had approximately 82,000 employees worldwide.
Earnings Conference Call
Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://www.merck.com/investors/events-and-presentations/home.html.
Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number
22104203. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
22104203. Journalists who wish to ask questions are requested to contact
a member of Merck’s Media Relations team at the conclusion of the call.
Today’s Merck is a global healthcare leader working to help the world be
well. Merck is known as MSD outside the United States and Canada.
Through our prescription medicines, vaccines, biologic therapies, and
consumer care and animal health products, we work with customers and
operate in more than 140 countries to deliver innovative health
solutions. We also demonstrate our commitment to increasing access to
healthcare through far-reaching policies, programs and partnerships. For
more information, visit www.merck.com
and connect with us on Twitter,
This news release includes “forward-looking statements” within the
meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. These statements are based
upon the current beliefs and expectations of Merck’s management and are
subject to significant risks and uncertainties. There can be no
guarantees with respect to pipeline products that the products will
receive the necessary regulatory approvals or that they will prove to be
commercially successful. If underlying assumptions prove inaccurate or
risks or uncertainties materialize, actual results may differ materially
from those set forth in the forward-looking statements.
Risks and uncertainties include but are not limited to, general industry
conditions and competition; general economic factors, including interest
rate and currency exchange rate fluctuations; the impact of
pharmaceutical industry regulation and health care legislation in the
United States and internationally; global trends toward health care cost
containment; technological advances, new products and patents attained
by competitors; challenges inherent in new product development,
including obtaining regulatory approval; Merck’s ability to accurately
predict future market conditions; manufacturing difficulties or delays;
financial instability of international economies and sovereign risk;
dependence on the effectiveness of Merck’s patents and other protections
for innovative products; and the exposure to litigation, including
patent litigation, and/or regulatory actions.
Merck undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise. Additional factors that could cause results to differ
materially from those described in the forward-looking statements can be
found in Merck’s 2012 Annual Report on Form 10-K and the company’s other
filings with the Securities and Exchange Commission (SEC) available at
the SEC’s Internet site (www.sec.gov).
1 Merck is providing certain 2013 and 2012 non-GAAP
information that excludes certain items because of the nature of these
items and the impact they have on the analysis of underlying business
performance and trends. Management believes that providing this
information enhances investors’ understanding of the company’s
performance. This information should be considered in addition to, but
not in lieu of, information prepared in accordance with GAAP. For
description of the items, see Table 2a, including the related footnotes,
attached to this release.
2 Net income attributable to Merck & Co., Inc.
3 Represents the difference between calculated GAAP EPS and
calculated non-GAAP EPS, which may be different than the amount
calculated by dividing the impact of the excluded items by the
weighted-average shares for the period.
4 Includes expenses for the amortization of intangible assets
recognized as a result of mergers and acquisitions, as well as
intangible asset impairment charges. Also includes integration and other
costs associated with mergers and acquisitions.
5 Includes the estimated tax impact on the reconciling items.
In addition, amount for 2013 includes a benefit of approximately $160
million associated with the resolution of a previously disclosed legacy
Schering-Plough federal income tax issue.
MERCK & CO., INC.
|Costs, Expenses and Other|
|Materials and production (1)||3,959||4,037||-2%|
|Marketing and administrative (1)||2,987||3,074||-3%|
|Research and development (1)||1,907||1,862||2%|
|Restructuring costs (2)||119||219||-46%|
|Equity income from affiliates (3)||(133||)||(110||)||21%|
|Other (income) expense, net (4)||282||142||99%|
|Income Before Taxes||1,550||2,507||-38%|
|Income Tax (Benefit) Provision||(66||)||740|
|Less: Net Income Attributable to Noncontrolling Interests||23||29|
|Net Income Attributable to Merck & Co., Inc.||$||1,593||$||1,738||-8%|
|Earnings per Common Share Assuming Dilution||$||0.52||$||0.56||-7%|
|Average Shares Outstanding Assuming Dilution||3,053||3,074|
|Tax Rate (5)||-4.3||%||29.5||%|
(1) Amounts include the impact of acquisition-related costs and
restructuring costs. See accompanying tables for details.
(2) Represents separation and other related costs associated with
restructuring activities under the company’s formal restructuring
(3) Primarily reflects equity income from the AstraZeneca LP and
Sanofi Pasteur MSD partnerships.
(4) Other (income) expense, net in the first quarter of 2013
reflects approximately $140 million of losses due to exchange as a
result of a Venezuelan currency devaluation.
(5) The GAAP effective tax rate for the first quarter of 2013
reflects the favorable impact of various discrete items, including
the impact of tax legislation enacted in the first quarter of 2013,
a reduction in tax reserves upon expiration of applicable statute of
limitations, as well as a benefit of approximately $160 million
associated with the resolution of a previously disclosed legacy
Schering-Plough federal income tax issue.
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME
GAAP TO NON-GAAP RECONCILIATION
FIRST QUARTER 2013
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
|Costs, Expenses and Other|
|Materials and production||3,959||1,184||43||1,227||2,732|
|Marketing and administrative||2,987||23||17||40||2,947|
|Research and development||1,907||30||15||45||1,862|
|Equity income from affiliates||(133||)||(133||)|
|Other (income) expense, net||282||282|
|Income Before Taxes||1,550||(1,237||)||(194||)||(1,431||)||2,981|
|Taxes on Income||(66||)||(439||)||
|Less: Net Income Attributable to Noncontrolling Interests||23||23|
|Net Income Attributable to Merck & Co., Inc.||$||1,593||(992||)||$||2,585|
|Earnings per Common Share Assuming Dilution||$||0.52||$||0.85|
|Average Shares Outstanding Assuming Dilution||3,053||3,053|
Merck is providing non-GAAP information that excludes certain items
because of the nature of these items and the impact they have on the
analysis of underlying business performance and trends. Management
believes that providing this information enhances investors’
understanding of the company’s performance. This information should
be considered in addition to, but not in lieu of, information
prepared in accordance with GAAP.
(1) Amounts included in materials and production costs reflect
expenses for the amortization of intangible assets recognized as a
result of mergers and acquisitions. Amounts included in marketing
and administrative expenses reflect merger integration costs.
Amounts included in research and development expenses represent
in-process research and development (“IPR&D”) impairment charges.
(2) Amounts primarily include employee separation costs and
accelerated depreciation associated with facilities to be closed or
divested related to actions under the company’s formal restructuring
(3) Represents the estimated tax impact on the reconciling items, as
well as a benefit of approximately $160 million associated with the
resolution of a previously disclosed legacy Schering-Plough federal
income tax issue.
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
|TOTAL SALES (1)||$10,671||$11,731||$12,311||$11,488||$11,738||$47,267||-9|
|Primary Care and Women’s Health|
|Diabetes & Obesity|
|Women’s Health & Endocrine|
|Hospital and Specialty|
|Cosopt / Trusopt||105||124||105||102||113||444||-15|
|Cozaar / Hyzaar||267||336||337||295||315||1,284||-21|
|ProQuad, M-M-R II and Varivax||272||255||316||396||306||1,273||7|
|Other Pharmaceutical (2)||1,022||1,066||1,034||1,065||1,161||4,333||-4|
|Other Revenues (3)||369||274||333||347||360||1,315||34|
|* 100% or greater|
Sum of quarterly amounts may not equal year-to-date amounts due to
|(1) Only select products are shown.|
(2) Includes Pharmaceutical products not individually
shown above. Other Vaccines sales included in Other Pharmaceutical
were $53 million for the first quarter of 2013. Other Vaccines sales
included in Other Pharmaceutical were $60 million, $75 million, $116
million, and $69 million for the first, second, third, and fourth
quarters of 2012, respectively.
(3) Other revenues are primarily comprised of alliance
revenue, miscellaneous corporate revenues and third party
Steve Cragle, 908-423-3461
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